Specialist credit and political risk insurance (CPRI) broker, BPL Global, has named Spain and Germany in its top 10 countries for CPRI claims by value over the past three years. This represents a shift in claim collection trends, where emerging markets losses have historically accounted for the highest-value claims.
The broker collected US$32 million and US$27 million in claims arising from losses in Spain and Germany, respectively, on behalf of its clients – placing the two countries at six and seventh in its 2016-2018 ranking. This, BPL Global explains, is a reflection of the market’s naturally increasing appetite for OECD-located risk and highlights its own increased exposure to risk emanating from Northern and Western Europe – now totaling nearly US$2 billion.
BPL Global’s enquiry flow over the latter half of 2018 highlights a similar shift towards OECD territories, with a third of enquiries relating to OECD-located risk. According to the broker, this evidences continuing demand for single-situation credit insurance beyond emerging markets. Significantly, financial institutions provided around 50% of all new enquiries in the broker’s H2 2018 enquiry flow, with one in five of these relating to unsecured corporate lending.
The findings come from broker’s newly-released annual CPRI Market Insight report. Commenting on the report, BPL Global’s Managing Director, James Esdaile, said that this year’s report “addresses what was a standout year for the CPRI market”.
Deal or no deal, the market is ready
Not surprisingly, the report addresses the potential fall-out from Brexit, particularly with respect to the continuity of long-term policy contracts, passporting rights, and prospects for EU insurers.
The report concludes that the CPRI market is well-positioned to cope with the impact of Brexit-related uncertainty, with insurers having already secured their contingency plans in place in the event of a “no-deal” scenario.
UK-based insurers have either opted to redomicile an existing company to within the EU or to establish a new European company and transfer existing business to this entity via a portfolio transfer (known as a “Part VII”) in advance of Brexit.
Growth of market capacity
The uncertainty has not dampened appetite in the meantime either, with Esdaile noting “significant growth across key business lines”. According to the market-wide capacity survey featured in the report, credit capacity for non-trade risks grew by approximately 15% in 2019. Credit capacities for non-payment public obligor and political risk lines both also rose by US$200 million from last year.
As well as the market’s response to increased demand, the growth in non-trade capacity is partly attributed to the redefinition of Lloyd’s regulations, with Lloyd’s syndicates able to obtain approval in their business plans to write non-trade risks from 2019 and beyond.
In terms of project finance, BPL Global’s enquiry flow sheds light on the uptick. Demand for longer-term project finance (PF) risks has been driven by banks, which now account for 13% of all BPL Global’s bank enquiries. These enquiries largely emanate from the Power and extractive (Oil, Mining and Metals) sectors, but export finance and structured finance transactions also feature prominently.
Despite this growth, the broker reports a slight decline in overall maximum per risk capacity in certain lines from last year, following drops in non-payment obligor (CR) and project finance (PF). But, as the broker points out, the data for non-payment private obligor risk shows that market capacity at tenors of seven years and beyond mirrors last year’s results. With capacity availability for short- tenor non-payment private obligor risks rarely an issue, the finding indicates continued appetite for covering long-term risks in this business line.
Esdaile adds that the shift towards OECD-located risk and growth in non-trade and project finance risk business lines speak to “an agility within the market to adjust to both shifting risk patterns and evolving client demand”.
Such evolving demand is further addressed in the report with increases noted for Power-related enquiries (including renewables) and Transport-related transactions, primarily for aircraft and shipping. Demand trends have not completely changed however: the market is still dominated by enquires from the extractive industries, accounting for approximately 40% of all transactions submitted to insurers.
See the full report here.